Here’s What’s Happening With Returns At Inzi DisplayLtd (KOSDAQ:037330)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Inzi DisplayLtd (KOSDAQ:037330) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Inzi DisplayLtd:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.14 = ₩33b ÷ (₩474b - ₩249b) (Based on the trailing twelve months to September 2020).

Therefore, Inzi DisplayLtd has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 5.6% it's much better.

Check out our latest analysis for Inzi DisplayLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Inzi DisplayLtd's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Inzi DisplayLtd, check out these free graphs here.

How Are Returns Trending?

We like the trends that we're seeing from Inzi DisplayLtd. Over the last five years, returns on capital employed have risen substantially to 14%. The amount of capital employed has increased too, by 33%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 53% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

The Key Takeaway

To sum it up, Inzi DisplayLtd has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 200% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing to note, we've identified 2 warning signs with Inzi DisplayLtd and understanding these should be part of your investment process.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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